Time to open up UK bond markets to give investors more options

The author is chair of the Investor Access to Regulated Bonds industry group and head of fixed income strategy and sales at Winterflood Securities.

In the UK, the average retail investor can buy stocks of any kind – a triple-leveraged exchange-traded fund or even a crypto asset – but not a Church of England bond launched this year.

Access to the corporate bond market for investors and discretionary wealth managers has steadily eroded in the UK over the past 10 years, partly due to the adoption of various EU regulations. At a time when retail investors are looking for safer ways to earn returns and income, this needs to change.

Over the past decade, the EU has tightened regulatory requirements for issuing bonds. In particular, there has been an increase in disclosure requirements for bonds with a face value below €100,000. Therefore, most issuers find it easier to avoid investors who cannot meet the threshold. The denomination of the Church of England bond issue was £100,000.

Corporate bond issues are now firmly in the hands of wholesale markets. Data compiled by the International Capital Market Association shows that in 2000, 90% of bonds issued across Europe had a minimum investment of €1,000. In 2018, 90% of all bond issues had a minimum investment of €100,000.

The UK has signaled its intention to address this issue post-Brexit. That of the Treasury paper on the results of its review of the UK prospectus regime this year acknowledged the “artificial incentive” to issue high-denomination securities. He said the government did not intend to include face value as a factor that would allow for different disclosure for non-equity securities.

The Financial Conduct Authority has also confirmed that it wants the UK to derogate from EU rules for what are classified as packaged retail and insurance-based investment products, in a bid to promote liquidity. and choice in the retail corporate bond market.

The UK has a long love affair with direct investing and stock ownership – from personal stock plans to the 23-year-old “shares and shares” ISA. But outside the parameters of National Savings & Investments, the UK has rarely focused on offering regulated income as a product. In contrast, income is a larger share of US investors’ portfolios, such as the $4 billion municipal bond market issues, which are largely tax-exempt.

UK individuals should have better access to bonds from listed companies, such as those on the FTSE 100 or organizations that have a similar level of oversight. We need issuers to consider adopting smaller corporate bonds, freeing up productive capital in line with government and FCA ambitions.

It is also the responsibility of the financial services industry to support sound investments and ensure the availability of appropriate financial products. This takes on added importance given the FCA’s goal of turning hoarded savings into investable assets, as announced last year.

Global financial markets are rightly focused on engaging the next generation of investors, but recent census data shows that baby boomers are the largest demographic group in the UK, the most 65 years representing 18.6% of the population. Similarly, the group with the highest average level of savings are those aged 60-64 – they enjoy an average net financial wealth of £116,900 compared to an average net financial wealth of £28,400 for those aged 35-64. 39 years old.

The deployment of excess liquidity among this older group is driving some savers into unregulated territory, such as cryptocurrencies and other unsuitable commodities, in their pursuit of income.

Indeed, some UK investors suffered from the 2020 Blackmore Bond fiasco, which followed the London Capital Finance mini-bond scandal in 2019. Both investment schemes lured unsuspecting consumers and cost them millions. of books, when they were simply looking higher. income than with traditional savings accounts.

These scandals underscored the importance of the FCA’s commitment to a new consumption obligationa set of measures to improve communications and ensure that products and services meet consumer needs.

It’s time to engage investors more by ensuring secure and transparent access to top rated regulated listed bonds. This would support diversified funding streams for higher quality issuers and help bridge the savings gap in the UK as consumer portfolios shift from growth aspirations to income.